Victim of IMF Debt Trap, Pakistan Compelled to Seek New Loan By Abdus Sattar Ghazali Al-Jazeerah, CCUN, May 15, 2019

Abdul Hafeez Shaikh and the IMF Chairman Christine Lagarde

 

"The people have to pay dearly and long for the sins and crimes of their leaders"

Lee Kuan Yew, former Prime Minister of Singapore.

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After appointing an ex-IMF official as Finance Minister and another ex-IMF official as State Bank of Pakistan Governor, the government of Pakistan has assured the International Monetary Fund (IMF) of increasing electricity and gas prices and to eliminate the subsidy given to the consumers.

At the same time, at the IMF demand, the government would not interfere in the matters of Oil & Gas Regulatory Authority (OGRA) and National Electric Power Regulatory Authority (NEPRA) in fixing gas and electricity prices respectively. At present they have to take government permission to fix gas and electricity prices.

Dr. Reza Baqir, who has been appointed as the Governor of the State Bank of Pakistan has been with the IMF since 2000. He quit his job recently as the IMF senior resident representative to Egypt to take charge of the State Bank.

Dr. Abdul Hafeez Shaikh, the new Finance Minister, has represented the IMF in several countries. He also worked with the World Bank, and served as country head for Saudi Arabia. Shaikh was appointed last month after the IMF apparently refused to work with Finance Minister Asad Umar.

Since coming to power, the Pakistan Tehreek-e-Insaf government has been exploring all financing options, including help from friendly countries. It has so far received a total of $9.1 billion in financial aid packages from China, Saudi Arabia, and UAE. However, it turns out that Pakistan still falling short of meeting its dollar requirement for the current financial year.

Pakistan has gone to the IMF repeatedly since the late 1980s. The last time was in 2013, when Islamabad got a $6.6 billion loan to tackle an economic crisis.

On May 12, 2019, it was announced that IMF and Pakistan have reached an agreement. Dr Shaikh announced that Pakistan would receive $6 billion worth of assistance under the IMF program over a period of three years. Besides the IMF assistance, Pakistan will also receive additional funds worth nearly $2-3 billion from institutions like the World Bank and Asian Development Bank, Dr. Shaikh added.

Total debt and external liabilities: $99.1 billion

Pakistan started the process of privatization in the 1980s, which gathered pace after the restoration of democracy in 1988. According to the finance ministry its total debt and external liabilities was $20.90 billion in 1990, rising to $38.86 billion in 2007 and $99.1 billion now.

IMF loans benefit only the corrupt leadership of Third World countries.

Former prime minister Nawaz Sharif’s government obtained a whopping $35 billion in new loans during his four-year (2013-2017) tenure to repay maturing debt and keep official foreign currency reserves at a level which could give a sense of economic stability to investors.

In July 2017, the Supreme Court of Pakistan disqualified Nawaz on concealment of assets charges. In December 2018, the  National Accountability Bureau (NAB), Pakistan’s anti-graft court, jailed Nawaz Sharif for seven years on graft charges.  The NAB in its ruling said that the three-time prime minister was unable to prove the source of income that led to his ownership of a steel mill in Saudi Arabia.

The former President, Asif Ali Zardari, whose government (2008-2013) is also responsible for huge IMF borrowing is now facing mega money laundering cases.

Pakistan has sold out more than 160 state-run entities since the 1980s, rendering hundreds and thousands of people jobless. Instead of seeing the country free from debt, what we see today is nothing but a phenomenal surge in the external debt and liabilities which is likely to haunt Pakistan’s coming generations for decades.

New IMF loan is likely to unleash a wave of liberalization, privatization and deregulation that will lead to more unemployment, poor living standards and substantial cuts in public spending.

Lee Kuan Yew, former Prime Minister of Singapore, is right when he says: “The people have to pay dearly and long for the sins and crimes of their leaders.”

What is ahead for Pakistanis?

This shocking report from Cairo after the implementation of the IMF reforms may provide some indication to Pakistanis:

“Egypt has seen a recent growth in the so-called “used food” markets, as citizens bear the brunt of IMF economic reform program, Middle East Monitor reported on April 18, 2019. Markets selling scraps of food have become increasingly common in Greater Cairo, home to more than 20 million people, with the remains of meals from restaurants and hotels offered to families at a discounted price. Defective food products, ranging from processed meats and pasta to cheese and juice, are also on offer, with many of the goods unpackaged, with no information as to where or when they were made.

“A shopper, Asma Mohammed, said she even had to buy chicken bones and necks from the street to make a stock for her family of five after she was unable to afford them at the usual market.“The poultry bones are now sold for 15 pounds [$0.87], two years ago they were only five pounds [$0.29], I do not know what I will do if I cannot even buy poultry legs and bones,” she said.

“The prices of basic food items, water and fuel have soared in recent years after state subsidies were cut and VAT was introduced in the country for the first time. The new policies come as part of Egypt’s commitment to economic reforms stipulated by the International Monetary Fund (IMF) in accordance with the country’s loan agreement.

“However, the policies have added to the financial woes of many millions of Egyptians living below the poverty line, who have complained of being unable to afford basic necessities since the price jumps.

Egypt has been praised for its commitment to the measures; during its fourth review of the program by the IMF last month, officials said.

Tellingly, Dr Reza Baqir, the new Governor of the State Bank of Pakistan, was IMF Representative in Cairo till recently.

Third World countries debt

The International Monetary Fund was established in 1944 as a lender of last resort to countries facing balance of payment difficulties, a lifeline for countries on the verge of insolvency.

By the 1980s a number of Third World countries turned to this lifeline, unable to pay back the massive loans they had received from western commercial banks in the 1970s.

The Third World countries are now in debt trap. External loans to developing country governments more than doubling from $191 billion in 2008 to $424 billion in 2017.

As a condition for financial assistance, the IMF requires governments to make harsh economic adjustments, such as cutting spending on socials services, and ending price subsidies on such essential items as food and fuel.

Developing nations have long viewed the IMF with suspicion for promoting disastrous privatizations. The IMF and the World Bank provide loans only if the poor countries privatized their economies and allowed western corporations free access to their raw materials and markets.

Tellingly, in 2014, the IMF’s own auditor said in a report that the IMF continues to be seen as a club for rich countries, limiting how much other nations trust its advice as objective. Many of the IMF’s members still believed the lender treated its bigger shareholders, including the United States and Europe, more leniently than others, the IMF auditor report said.

That perception was magnified when the IMF lent billions of dollars to euro zone countries in distress, including Greece, Ireland and Portugal, with loans that were much larger than the countries’ economies.

“The Euro Area programs had created the perception that European member countries had excessive weight in the IMF’s decisions relative to their economic power,” according to the report.

Aid to poor countries has little effect on economic growth, and policies that rely on such claims should be reexamined, two former International Monetary Fund economists wrote in a paper released in 2007.

"We find little evidence of a robust positive correlation between aid and growth," wrote Raghuram Rajan, who stepped down as IMF chief economist at the end of 2006, and Arvind Subramanian, who left the IMF in 2007.

Confessions of an Economic Hitman

This reminds me of John Perkin’s book “Confessions of an Economic Hitman.” Perkin was an IMF official. Perkins says he was actually an "Economic Hit Man" and his job was to convince countries that are strategically important to the United States to accept enormous loans for infrastructure development and to make sure that the lucrative projects were contracted to U.S. corporations.

He cooked the books in a gigantic international con game. More specifically, he produced and defended grossly inflated projections of economic growth that were then used to justify super-sized infrastructure projects financed with debts to foreign banks that could never be repaid.

Intentionally making un-payable loans to foreign governments may seem the work of fools, but the money flowed directly into the bottom lines of well-connected U.S. construction and energy companies like Bechtel and Halliburton, and the perpetual debts gave the U.S. government a stranglehold over the economic and political resources of the indebted nations.

The leaders of these countries would also have bolstered political power because they were credited with bringing industrial parks, power plants and airports to their people.

The problem is that these countries simply cannot handle the debt of these loans and their poorest citizens are deprived of health, education and other social services for several decades as these countries struggle economically to overcome their huge debts. 

Of particular interest is Perkins' story of his role in the deal that tied Saudi Arabia to U.S. interests, created a financial and political alliance between the House of Saud and the House of Bush, and led to a partnership that channeled billions of dollars to Osama bin Laden.

Under this agreement, the Saudis hold their oil earnings in U.S. Treasury bonds. The Treasury Department pays the interest on these bonds directly to favored U.S. corporations, with which it contracts to modernize Saudi Arabia's physical infrastructure. In return the U.S. government uses its political and military clout to keep the Saudi royal family in power.

According to Perkins, the Saudi agreement was to be a model for Iraq, but Saddam Hussein refused to play - which explains why George W. Bush was so intent on invading Iraq to remove him from office. The war was simply a different means to the same outcome. Effective control of Iraqi oil reserves was transferred to U.S. hands. Bechtel, Halliburton and other corporate Bush cronies received billions in new contracts.

Doug Bandow, the author of “Perpetuating Poverty: The World Bank, the IMF, and the Developing World” wrote in 1995: There is a biblical proverb that says: “the tender mercies of the wicked are cruel.”

 Perpetuating Poverty demonstrates this to be true on an international scale. Fifty years and hundreds of billions of dollars of aid from Western governments—tunneled through the IMF, the World Bank, and a number of other multilateral aid agencies—have had an impact on world poverty: it has helped keep the Third World poor just that—poor.

Abdus Sattar Ghazali is the Chief Editor of the Journal of America (www.journalofamerica.net)

email: asghazali2011(@) gmail.com

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